Former Public Finance Banker's Book Offers Insider's View

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CHICAGO – In 1987 a wide-eyed, ambitious, and well-meaning Mark Melio started as a junior banker at Goldman Sachs. He rose through the ranks to build a list of healthcare and higher education clients, eventually going on over to JPMorgan where later in his career he managed the tax-exempt capital markets division.

By the time he exited in 2009 and launched his own healthcare advisory business, he was burnt out from a culture he says increasingly put greed and profit before ethics and the client.

Melio shares his story in a recently published book: "The Private Life of Public Finance: Confessions of a Recovering Investment Banker."

"What I saw during those years was a slow but steady slide from a business where the top values were personal reputation, integrity, and putting clients' interests first to what it is today – a coldly efficient money machine that's shifted virtually all the risk from itself to the customer," Melio writes.

Early on, he says the litmus test of a transaction was first and foremost whether it was ethical, and if so, was it legal. By the late 1990s, if the lawyers said it was technically legal, then it was automatically deemed ethical. It was that recklessness that he says "helped produce" the 2008 financial crisis.

The book recapping highlights of his career, his family background, and his view of the Street's evolution was a five-year endeavor for Melio, founder of Melio & Co. LLC which is based in the Chicago area where Melio and his family have called home since relocating to Chicago during his Goldman years.

"Had I just stayed in banking I would have never written the book. If I left and did something else I wouldn't have written it," Melio, 56, said in a recent interview. "After I left my eyes were opened up in an unbelievable way," he said. "I really thought as a banker that I was the closest party to the client and had their best interests at heart."

After leaving, he writes, he was "chagrined to realize that the trusted advisor I saw in the mirror each morning was illusory" as he realized that he'd been a participant in banks' profiteering.

Once he began his advisory work, he made a new discovery. After bankers left the room, his healthcare clients – the same ones he worked with as a banker – were now weary and skeptical of banker promises. It was after the 2008 financial crisis and credit crunch during which borrowers had been squeezed as products like auction rate securities and swaps turned into costly burdens.

Healthcare borrowers were especially hit hard by the collapse of the ARS market in early 2008 and struggled then with market access and negative swap valuations after Lehman Brothers' September collapse. Credit and liquidity support was hard and costly to come by.

Melio thought about how borrowers don't know the behind-the-scenes story of the banking side and neither does the public, despite the fact that the deals are financing projects of significant public importance.

With a new perspective as an advocate for the borrower, he thought: "I do know what's going on and I wanted to share it."

The book covers the span of his career and lays bare instances where he saw banks capitalize on their clients confusion over complex products like swaps, underpriced bonds to offer attractive yields, offered bonds first to top customers – flippers who made a quick buck -- as a reward for helping bolster the bank's trading revenue.

It was in 2007 as the cracks that led to the financial crisis began to show and bank credit support dried up that his disillusionment settled in.

"The collusive, predatory practices we know about now were just becoming apparent, like dead fish at low tide," he writes.

Melio says he retains respect for many of his former colleagues who have "hearts and consciences."

"I think the vast majority are well-meaning professionals who like the public sector," he said in the interview. "The problem is when you are compensated on the amount of money you bring in.

"I think right now there is some disillusionment among bankers," he said. "Compensation has been cut, they thought they were trusted advisors but now have to send regulatory letters to clients," leading to what he describes as an exodus of quality bankers.

After graduating from Penn State and earning a graduate degree from Carnegie Mellon, Melio worked in the healthcare consulting group for Touche Ross. A friend left for Goldman "making a whole lot more money" and told him he should do the same.

He started in 1987 when he was 27 and recalls being embarrassed at his pay, twice what his father made working in the steel mills of Pennsylvania.

Wall Street presented a new world for Melio, whose roots were blue-collar and whose grandparents were immigrants. "Although I was inside the bubble, I would always feel I was on the outside looking in," he writes.

After a decade at Goldman focused on healthcare and higher education and during which he'd moved to Chicago, he decided to move to the "up and comer" in public finance -- JPMorgan -- as Goldman planned to close regional offices and move bankers to New York City.

He spent the last 12 years at JPMorgan. In his later years, he was elevated from the head of healthcare and higher education to co-head of tax-exempt capital markets group and temporarily was sole head as it merged operations with its new acquisition -- the former Bear Stearns.

Another co-leader was later assigned to manage the group with him and the firm decided to hand the reins solely to his co-manager in 2009. Melio was asked to return to his prior position as head of healthcare and higher education but he decided it was time to go.

Melio said he's mostly gotten positive feedback on the book from clients. One banker, however, took him to task for his accusations that bankers are not working in the best interest of the client.

Melio sees changes on the horizon for the industry given the political climate with tax rate changes likely coming that could impact the appeal of municipals and ongoing threats to municipals' tax-exemption as well as industry developments like the expanding role of bank lending and private placements.

He expects to watch the evolution from his current vantage point.

"I'm a lot happier now on the other side of the table," he said. The Private Life of Public Finance is available at Amazon.

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